Should You Use Y.C.C. Parts Mfg's (TPE:1339) Statutory Earnings To Analyse It?

As a general rule, we think profitable companies are less risky than companies that lose money. Having said that, sometimes statutory profit levels are not a good guide to ongoing profitability, because some short term one-off factor has impacted profit levels. This article will consider whether Y.C.C. Parts Mfg's (TPE:1339) statutory profits are a good guide to its underlying earnings.

While Y.C.C. Parts Mfg was able to generate revenue of NT$2.25b in the last twelve months, we think its profit result of NT$112.5m was more important. In the last few years both its revenue and its profit have fallen, as you can see in the chart below.

See our latest analysis for Y.C.C. Parts Mfg

Importantly, statutory profits are not always the best tool for understanding a company's true earnings power, so it's well worth examining profits in a little more detail. This article will focus on the impact unusual items have had on Y.C.C. Parts Mfg's statutory earnings. Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Y.C.C. Parts Mfg.

How Do Unusual Items Influence Profit?

To properly understand Y.C.C. Parts Mfg's profit results, we need to consider the NT$134m expense attributed to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. If Y.C.C. Parts Mfg doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Our Take On Y.C.C. Parts Mfg's Profit Performance

Because unusual items detracted from Y.C.C. Parts Mfg's earnings over the last year, you could argue that we can expect an improved result in the current quarter. Because of this, we think Y.C.C. Parts Mfg's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So while earnings quality is important, it's equally important to consider the risks facing Y.C.C. Parts Mfg at this point in time. Case in point: We've spotted 4 warning signs for Y.C.C. Parts Mfg you should be mindful of and 1 of these bad boys is significant.

This note has only looked at a single factor that sheds light on the nature of Y.C.C. Parts Mfg's profit. But there are plenty of other ways to inform your opinion of a company. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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